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Kroger and Albertsons CEO defends merger proposal at hearing


Supermarkets Albertsons and Kroger

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The battle is not the grocery giant grocery and Albertsons should be allowed to combine is heating up.

On Tuesday, the leaders of the two companies defended their merger proposal at a congressional hearing in Washington, where they faced a barrage of questions about how the deal could change the world. changing the competitive landscape — and possibly the price consumers pay in-store.

“I don’t see competition going down in the future,” Kroger CEO Rodney McMullen said at a Senate Judiciary Subcommittee hearing on Competition Policy, Antitrust and Consumer Rights. “It’s easy for customers to turn right or turn left.”

Kroger announces plans in October acquired Albertsons in a $24.6 billion deal. The Cincinnati-based company is the second-largest grocery retailer by market share in the United States, after Walmartand the Albertsons are fourth, behind Costco, according to market researcher Numerator. Together, Kroger and Albertsons will be in second place near Walmart.

At Tuesday’s hearing, McMullen said the merged company could help lower food prices and improve the customer experience, especially at a time when grocery stores are racing to adapt. changes like online shopping. He said retailers must continue to innovate to stay relevant and convince customers to drive to their stores.

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However, the proposed merger was met with fierce opposition from elected officials of both political parties and opposition from the United Food and Commercial Workers, a major grocery union. representing thousands of grocery store employees.

Senator Amy Klobuchar, a Democrat from Minnesota, led Tuesday’s hearing along with Senator Mike Lee, a Republican from Utah. Both have challenged the companies over their actions, including Kroger’s $1 billion share buyback announced last year and plans to pay shareholders dividends and deals. previous translations, such as the Albertsons acquisition of Safeway.

They emphasize that the proposed deal comes at a time when groceries are taking up more of the budgets of American families. Food prices spike as inflation hovers near four-decade high. Prices of everyday items, including butter, eggs, poultry, and milk double digit increase over the same period last year as of October, according to the most recent federal data available.

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The hearing offers a preview of the larger antitrust fight ahead.

For Kroger and Albertsons, the argument is clear: combining will help them weather dramatic industry changes. Online grocery sales are eating into already thin margins. New players, such as deeply discounted companies like Aldi and e-commerce players like Amazon, are also pressuring brick-and-mortar stores.

“The grocery store market has changed radically over the past decade, making competition for consumers fierce,” Albertsons CEO Vivek Sankaran said at the hearing. “The best way to compete with big stores like Walmart and high-cap online companies like Amazon would be through a merger with Kroger.”

He argued that even as a combined company, Kroger and Albertsons would still be small compared to Walmart, Costco and Amazon.

Ahead of the hearing, members of UCFW – representing more than 100,000 Kroger and Albertsons workers – shared their concerns at a press conference on Capitol Hill. Their concerns ranged from the potential loss of pension plans to higher food prices to job losses.

Union Albertsons employees recalled the impact of past mergers. Judy Wood, a longtime cake decorator for the grocery giant, said she and her colleagues were shocked by the store’s closure following the Safeway merger with Albertsons, which was announced in 2014.

Union members are also opposed to private equity firms that would benefit from a special $4-per-share dividend proposed to Albertsons shareholders announced with the deal. Cerberus Capital Management owns a 28.4% stake in Albertsons, according to FactSet. Currently, dividend payments are on hold until at least December 9 due to a Washington state court ruling.

McMullen said Tuesday that the company has no plans to close stores or lay off employees, but said it will work with the Federal Trade Commission, if needed, to remove stores for reasons due to competition.

As part of the original proposal, Kroger said had a plan to overcome merger concerns − divest from 100 to 375 stores in a split. Kroger and Albertsons will work together — and with the FTC — to decide which stores will be part of the subsidiary.

On Tuesday, McMullen said the company is “in active communication” with unions about the deal and what it means for its workforce. He said the final deal would expand opportunities for employees. He said Kroger will also spend $1 billion on higher wages and better benefits for store employees after the deal closes.

“A successful business is what gives his job security,” he said. “And we believe we will have a hugely successful business that creates job security.”

Several grocer’s competitors and industry experts also opposed the deal at the hearing.

Michael Needler, chief executive officer of Fresh Encounter, an independent grocery store chain based in Northwest Ohio, said companies like Walmart and Amazon use their size to pressure suppliers. offer lower prices and better terms. Instead of creating a level playing field, he said, the Kroger-Albertsons deal would create another power player that would make it difficult – if not impossible – for smaller grocers to get compete.

For example, he said, larger grocery stores have run predatory campaigns against their own chains by offering coupons for free groceries.

“I don’t know of any other way to indicate predatory pricing other than buying your competitors,” he said.

Sumit Sharma, a senior researcher specializing in antitrust and competition issues at Consumer Reports, also said at the hearing that he doesn’t see any benefit in merging companies. Instead, he said retailers would have less reason to raise wages for employees. Shoppers will have less choice and more shock stickers.

“Even if they sell a few stores, that will remove the competition from the market,” he said. “So prices will go up.”

by CNBC Amelia Lucas contributed to this report.

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